Building materials

Concrete plans

Will Germany's HeidelbergCement make a bid for Hanson?

EVEN by the standards of Germany's secretive tycoons, Adolf Merckle is a private man. Not much is known about the septuagenarian billionaire from Blaubeuren, a town in southern Germany, who controls a business empire ranging from Ratiopharm, a generic-drugs company, to Kässbohrer, a maker of all-terrain vehicles, except that he runs a tight ship with a small group of confidants. One of them is Bernd Scheifele, whom he installed as boss of HeidelbergCement after Spohn Cement, another of Mr Merckle's companies, took control of the world's fourth-biggest cement-maker two years ago.

Mr Merckle wanted Mr Scheifele to make HeidelbergCement more profitable and transform it into an industry giant. So far he has concentrated on the first of those tasks. On May 9th at the firm's general meeting he announced that profit in the first quarter of the year had increased to €109m ($143m) from €29m in the same period last year, thanks largely to restructuring. But Mr Scheifele did not say anything about his plans for Hanson, a British building-materials group, beyond repeating a statement made five days earlier that HeidelbergCement was reviewing its options. Buying Hanson would catapult the firm into the industry's big league, dominated by France's Lafarge, Mexico's Cemex and Holcim of Switzerland.

“HeidelbergCement is very likely to bid for Hanson,” predicts Arnaud Pinatel, an analyst at Exane, a French broker. At about £7.5 billion ($15 billion) Hanson would come at a high price, but strategically the deal would make a lot of sense. Hanson is the biggest maker of aggregates—the sand, gravel and crushed stone that are mixed with water and cement to produce concrete. If HeidelbergCement were to buy Hanson it would become a vertically integrated company, just as Lafarge, Holcim and Cemex have over the past decade.

This would provide economies of scale and the security of in-house supply. Lafarge was the first of the big cement-makers to make such a move, taking over Redland, a British quarry firm, ten years ago. In 2004 Cemex took over RMC, a British concrete group. In 2005 Holcim bought Aggregate Industries, a British aggregates firm. And Cemex is now putting the finishing touches on its $14 billion takeover of Rinker, an Australian construction group.

Rivals are unlikely to rush to bid for Hanson at today's price. (Its share price has doubled in the past 18 months.) An offer by Holcim would probably run into trouble with antitrust watchdogs in Britain; Cemex is busy with the integration of Rinker; and Bruno Lafont, Lafarge's boss, says he is focusing on internal growth and fast-growing emerging markets, rather than Britain and America, Hanson's main markets.

Hanson's presence in America, which accounts for nearly half its sales, is Mr Scheifele's main concern. The market is tough because of the darkening economic outlook, the weak dollar and the housing slowdown. But in 2005 Congress approved a roads bill which pledged to spend $286 billion on infrastructure by 2011. That is a lot of concrete. And despite the developing world's construction boom, America is the most profitable market.

HeidelbergCement might find Hanson hard to swallow. Standard & Poor's may downgrade its credit-worthiness if it bids for Hanson. HeidelbergCement could use the estimated €1.4 billion from the planned sale of its stake in Vicat, a French building-materials firm, to help pay for the acquisition. But a sale of some of Hanson's Asian and Australian assets after the takeover seems more likely. So will HeidelbergCement make a bid? Hanson is one of the few available aggregate-makers in a consolidating market. And when Mr Merckle sets goals for his companies, he does not like to be kept waiting.